GKN agrees $6 billion tie-up with Dana to help fend off Melrose

(Reuters) – GKN (GKN.L) has struck a $6.1 billion deal to merge its automotive business with U.S. company Dana Incorporated (DAN.N) in a move by the British engineer to fend off a hostile takeover by turnaround specialist Melrose Industries (MRON.L).

FTSE 100-listed GKN said on Friday that it had agreed to combine its Driveline division with the Ohio-based maker of axles and driveshafts in a deal giving GKN shareholders a 47.25 percent stake in the enlarged, U.S.-listed group.

The British company, whose customers include Fiat Chrysler and Volkswagen, will also receive $1.6 billion in cash and $1 billion of GKN’s pension deficit will be transferred to the combined business.

It deals a blow to Melrose, which has been pursuing a takeover of GKN since January, when the engineering group spurned its unsolicited cash-and-shares bid that at the time valued GKN at 7.4 billion pounds ($10.2 billion).

SHAREHOLDERS TO CHOOSE

It added that the merger gives Driveline an enterprise value, which includes debt, of $6.1 billion, based on Dana’s closing share price of $26.20 on Thursday.

Together with GKN’s plan to sell its powder metallurgy business, it will leave the company focused on aerospace, supplying parts to aircraft including the Black Hawk military helicopter and Eurofighter Typhoon.

GKN was left vulnerable to bid approaches after two profit warnings in October and November that were caused by problems at its U.S. aerospace business and sent its share price tumbling.

The British company disclosed on Friday that it was approached by Dana late in 2017 and began talks early this year.

If the deal is successful, Dana will become a UK public limited company, although it will remain headquartered in Ohio and its shares will be traded on the New York Stock Exchange. It will also be led by James Kamsickas, Dana’s current CEO.

GKN’s shareholders will need to approve the merger, which means they will have to weigh its merits against a Melrose takeover.

That will include considering whether they want to hold a stake in New York-listed Dana or London-listed Melrose.